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Reduced Market Hog Inventory Supports Positive Pig Report

Published: Friday, January 14, 2022

The USDA's December Hogs and Pigs report places the Dec. 1 inventory of all hogs and pigs at 74.2 million head, down about 1 percent from last quarter and 4 percent lower than the same time last year, compared to an average pre-report estimate of just 2.8 percent lower. That's the smallest December inventory since 2017, according to Jason Franken, agricultural economist at Western Illinois University and contributor to the University of Illinois farmdoc team.

"While pre-report expectations pegged the breeding herd just right at only .1 percent higher than a year ago, the market hog inventory is similarly down about 4.5 percent compared to expectations of only 2.9 percent lower. All weight classes of market hog inventories are down compared to the same time last year, and all but the 50-to-119-pound class are down more than expected pre-report," Franken said.

The heaviest two weight classes of 120-to-179-pounds and over-180-pounds are about 6 percent lower than a year ago, and 2.5 percent and 3 percent lower than pre-report expectations, respectively. These estimates were somewhat more accurate for lighter weight hogs, Franken notes. The 50-to-119-pound class is 2.5 percent lower, compared to expectations of 2.7 percent lower, while the under-50-pound inventory is 3.7 percent lower than a year ago, just .8 percent lower than expected.

"Overall, there are nearly 4 percent fewer hogs weighing under 180 pounds than a year ago, and these will be the market hogs arriving at processing plants from January to May 2022. These numbers and farrowing estimates add some bullish sentiment," Franken said.

"The decline in lighter weight hogs partly reflects that the September-November pig crop is 3.6 percent smaller than last year, despite a record number of pigs saved per litter, as 4.8 percent fewer sows were farrowed for the period, compared to expectations of only 3.1 percent fewer. The record 11.19 pigs saved per litter continues the upward trend observed over the last decade. Still, a smaller fall pig crop, resulting from fewer sows farrowed, should imply a similarly smaller slaughter this spring."

Meanwhile, winter farrowing intentions are up almost .5 percent from actual farrowings last year compared to expectations of .8 percent higher. Spring farrowing intentions are down about .8 percent from last year compared to expectations of nearly .2 percent higher. Lower-than-expected farrowing intentions, unless offset by pigs per litter pushing still higher, should translate into lower inventories later on, Franken states.

Frozen stocks of meat remain low. According to the USDA cold storage report, cold stocks of pork on Nov. 30 are down 8 percent from the prior month and 3 percent from a year ago, which previously was the lowest level for pork since the start of the COVID-19 pandemic. Meanwhile, poultry stocks are down 17 percent from the prior month and 18 percent from a year ago, while beef is up 4 percent from the prior month and down 4 percent from last year.

The USDA estimates U.S. per capita pork consumption at 50.9 pounds per person for 2021, and forecasts the number dropping to 49.9 pounds per person in 2022. Prior to COVID-19, U.S. per capita pork consumption reached 52.4 pounds in 2019 or the highest it has been since it was 54.2 pounds in 1981.

"With this outlook for domestic consumption, the market will again look to exports to help bolster prices," Franken said.

The U.S. exported 541 million pounds of pork in October, or nearly 8.5 percent less than in October of 2020, largely due to 62.7 percent lower shipments to China and Hong Kong, which was only partly offset by stronger exports to Mexico and other parts of Latin America.

The lower-than-expected October pork exports prompted a 30-million-pound reduction to the fourth-quarter export estimate, now at 1.8 billion pounds, dropping the total for 2021 to 7.2 billion pounds, or almost 2 percent below the 2020 level.

For 2022, the first and the second quarters, respectively, are forecast to be about 9.2 percent and 2.2 percent below year-ago levels, while the third quarter is forecast to be 11.7 percent higher. Hence, while weaker export demand is anticipated for the first half of 2022, it is expected to bounce back later in the year.

"All in all, recent reports offer some optimism for hog prices," Franken states. "The forecast presented here is for the national weighted average net price on a carcass basis for all transactions for producer-sold barrows and gilts, including negotiated and contract prices. This net price should be more reflective of what producers receive, and normally runs at a premium of more than $2 per hundredweight over the base price, on average. From October through December, this net price averaged $79.56 per hundredweight compared to $63.84 per hundredweight for the corresponding net prices for negotiated or spot transactions."

In general, hog prices tend to be higher in the second and third quarters, with lower prices in the first and fourth quarters, Franken notes. Consistent with that pattern, this forecast places first-quarter prices at about $80.83 per hundredweight, rising to $91.37 per hundredweight and $92.93 per hundredweight by the second and third quarters, respectively, before dropping to $83.27 per hundredweight for the fourth quarter.

"These projections assume domestic demand maintains current levels and export demand grows in the latter half of the year. A big wildcard, on that front, could be how African swine fever might affect competitors in export markets. Of course, if demand is lower or if hog supply turns out to be greater than anticipated, then lower prices may be realized," Franken concludes.

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